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You are what you charge: ultimately, a business is defined by that for which it collects revenue, and it collects revenue only for that which it decides to charge.

Prices comprise the language of business, indeed of society.

They serve three crucial functions: First, they transmit information; second, they provide an incentive to use methods of production that are least wasteful and most valuable; and finally, they distribute income. Free market prices are essential to a well-ordered society, and should be protected as a form of free speech.

Once it becomes clear that no customer buys hours, it is self-evident that pricing by the hour is precisely the wrong measurement to establish the value provided to the customer. The firm of the future will price on purpose, for profitability, not market share. Pricing is an art more than a science. Of the four P's of marketing--price, place, promotion, and product--price is the most complicated. It is the only chance a business has to capture the value it produces outside of itself, which is the marketing concept championed by Peter Drucker.

Price does not create the value per se--although it can greatly influence the perception of it--but it does capture it, leaving the other three P's to produce value for the customer. Price also sends distinct signals into the marketplace, giving customers clues as to who you are, what you do, whom you serve, and ultimately, how your firm perceives itself. Think of the message that a Mercedes versus a Chevy, or a Mont Blanc pen versus a Bic, sends into the marketplace; a large part of that message is embedded in the price. A firm's price creates an acoustic effect in the marketplace, which over the long term will speak volumes about the firm and its level of self-esteem.

For too long--approximately two generations--professionals have ignored the art of pricing, and have starved it of the intellectual creativity and resources it richly deserves. Professional service firms have even gone a step further by relegating the pricing function to an administrative or organizational task, delegating the art to a rote procedure of completing timesheets and inputting the results into time and billing programs.

This is a serious mistake. Pricing is, always has been, and always will be, a marketing issue, ultimately determined by the customer. It is time to restore price to the exalted position it merits in the marketing strategy of your firm. The firm of the future does not have hourly rates; it has prices, set in advance of work being done.

Adapted from "The Firm of the Future: A Guide for Accountants, Lawyers, and Other Professional Services," John Wiley and Sons, available through the AICPA store, www.cpa2biz.com/store

Baker will be leading the AICPA Firm of the Future Workshop at the Accounting Firm Leadership Forum, Omni Orlando Resort at Champions Gate, Nov. 15-16, Orlando, FL.
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Author:Dunn, Paul
Publication:Journal of Accountancy
Date:Nov 1, 2004
Words:450
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